Correlation Between IShares and Vanguard Short

Can any of the company-specific risk be diversified away by investing in both IShares and Vanguard Short at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining IShares and Vanguard Short into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between IShares and Vanguard Short Term Inflation Protected, you can compare the effects of market volatilities on IShares and Vanguard Short and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in IShares with a short position of Vanguard Short. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares and Vanguard Short.

Diversification Opportunities for IShares and Vanguard Short

-0.34

Correlation Coefficient

IShares  Vanguard Short

Very good diversification

The 3 months correlation between IShares and Vanguard is -0.34. Overlapping area represents the amount of risk that can be diversified away by holding IShares and Vanguard Short Term Inflation in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Short Term and IShares is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on IShares are associated (or correlated) with Vanguard Short. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Short Term has no effect on the direction of IShares i.e., IShares and Vanguard Short go up and down completely randomly.

Pair Corralation between IShares and Vanguard Short

Given the investment horizon of 90 days IShares is expected to generate 5.46 times more return on investment than Vanguard Short. However, IShares is 5.46 times more volatile than Vanguard Short Term Inflation Protected. It trades about 0.08 of its potential returns per unit of risk. Vanguard Short Term Inflation Protected is currently generating about 0.12 per unit of risk. If you would invest  4,798  in IShares on September 4, 2024 and sell it today you would earn a total of  1,503  from holding IShares or generate 31.33% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	84.41%
Values	Daily Returns

IShares  vs.  Vanguard Short Term Inflation

IShares

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days IShares has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, IShares is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Vanguard Short Term

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Short Term Inflation Protected are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable forward indicators, Vanguard Short is not utilizing all of its potentials. The recent stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with IShares and Vanguard Short

The main advantage of trading using opposite IShares and Vanguard Short positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IShares position performs unexpectedly, Vanguard Short can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Vanguard Short will offset losses from the drop in Vanguard Short's long position.

The idea behind IShares and Vanguard Short Term Inflation Protected pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.